THE TAX TSUNAMI ON THE HORIZON

July 22, 2010

Many voters are looking forward to 2011, hoping a new Congress will put the country back on the right track. But unless something's done soon, the new year will also come with a raft of tax hikes -- including a return of the death tax -- that will be real killers, says Investor's Business Daily (IBD).

Through the end of this year, the federal estate tax rate is zero -- thanks to the package of broad-based tax cuts that President Bush pushed through to get the economy going earlier in the decade. But as of midnight Dec. 31, the death tax returns -- at a rate of 55 percent on estates of $1 million or more.

Resurrection of the death tax, however, isn't the only tax problem that will be ushered in Jan. 1, says IBD. Many other cuts from the Bush administration are set to disappear and a new set of taxes will materialize. And it's not just the rich who will pay:

The lowest bracket for the personal income tax, for instance, moves up 50 percent -- to 15 percent from 10 percent.

The next lowest bracket -- 25 percent -- will rise to 28 percent, and the old 28 percent bracket will be 31 percent.

At the higher end, the 33 percent bracket is pushed to 36 percent and the 35 percent bracket becomes 39.6 percent.

But the damage doesn't stop there, says IBD:

The marriage penalty also makes a comeback, and the capital gains tax will jump 33 percent -- to 20 percent from 15 percent.

The tax on dividends will go all the way from 15 percent to 39.6 percent -- a 164 percent increase.

Both the capital gains and dividend taxes will go up further in 2013 as the health care reform adds a 3.8 percent Medicare levy for individuals making more than $200,000 a year and joint filers making more than $250,000.

Other tax hikes include halving the child tax credit to $500 from $1,000 and fixing the standard deduction for couples at the same level as it is for single filers.

Letting the Bush cuts expire will cost taxpayers $115 billion next year alone, according to the Congressional Budget Office, and $2.6 trillion through 2020.

Source: Editorial, "The Tax Tsunami On The Horizon," Investor's Business Daily, July 21, 2010.